Tax assets, subsidiaries, property and goodwill

Current tax assets

Simple definition. Tax the bank has already paid to the government that exceeds what it actually owes — i.e. a refund due, or advance tax that will be set against the final bill.

Technical definition. The excess of tax paid (advance/instalment tax and tax deducted at source) over the current tax liability for the period, recognised as an asset under NAS 12 Income Taxes.

Purpose. Prevents overstating tax expense when cash has already gone out ahead of the assessment.

Nepalese context. Nepali banks pay advance income tax in instalments during the income year under the Income Tax Act 2058, and suffer TDS on certain receipts. Because instalments are based on estimated profit, an over-estimate leaves an asset here at year end. This balance persists until the assessment is finalised — which in Nepal can take years, especially where the bank is in dispute with the Inland Revenue Department.

Recognition. When tax paid exceeds tax payable for the period.

Measurement. At the amount expected to be recovered, using tax rates and laws enacted or substantively enacted at the reporting date.

Debit/credit nature. Debit (asset).

Offsetting. Current tax assets and current tax liabilities may be offset only where there is a legally enforceable right of set-off and the entity intends to settle net. Note the source report shows Current tax assets on the asset side (Group NPR 155,706 thousand) and Current Tax Liabilities on the liability side (Group NPR 99,341 thousand) simultaneously — meaning the offsetting criteria were not met, typically because they relate to different entities in the Group.

Journal entry.

Advance tax instalment paid:
Dr  Current tax asset                   500,000,000
    Cr  Cash                                          500,000,000

Year-end current tax charge determined at NPR 450,000,000:
Dr  Income tax expense — current tax    450,000,000
    Cr  Current tax asset                             450,000,000

Residual NPR 50,000,000 remains a current tax asset.

Presentation. Face of the balance sheet, in the asset section. Note disclosure reconciles tax expense to accounting profit.

Effect on P&L. None directly — it is a balance-sheet consequence of the tax charge. Effect on cash flow. Income taxes paid is disclosed within operating activities.

Related terms. Current Tax Liabilities · Deferred tax assets · Part 2 Current Tax · Part 8 Current Income Tax, Deferred Tax

Investment in subsidiaries

Simple definition. The cost of the shares the bank owns in companies it controls.

Technical definition. Investments in entities the bank controls, carried in the separate (standalone) financial statements at cost or in accordance with NFRS 9, and eliminated on consolidation in the Group financial statements where the subsidiaries' assets, liabilities, income and expenses are combined line by line.

Why the line is nil in the Group column. This is the clearest, most instructive Group-vs-Bank difference on the whole balance sheet:

                          Group          Bank (standalone)
Investment in subsidiaries   −              772,488

(NMB, Asar 2083, NPR thousand.) In the standalone accounts the bank shows what it paid for its subsidiaries. In the Group accounts that investment is replaced by the actual assets and liabilities of those subsidiaries, so carrying it as well would double-count.

STANDALONE                          CONSOLIDATED
──────────                          ────────────
Investment in subsidiary  772,488   Investment in subsidiary      −
                                    (eliminated)
                                    Subsidiary's own assets     +XXX
                                    Subsidiary's own liabs      −XXX
                                    Goodwill (if any)           +XXX
                                    Non-controlling interest    −XXX

Nepalese context. The source report's group comprises:

This three-subsidiary shape — a merchant bank, a broker, a microfinance company — is the standard structure of a large Nepali commercial banking group, driven by regulation: banks cannot conduct merchant banking or broking within the bank itself, so they must do it through licensed subsidiaries.

Framework. NFRS 10 Consolidated Financial Statements for control and consolidation; NAS 27 for separate financial statements; NFRS 3 where a subsidiary was acquired in a business combination.

Control test (NFRS 10, para 8) — all three must be met, as the report sets out:

1. 1Power over the investee
2. 2Exposure, or rights, to variable returns from involvement with the investee
3. 3The ability to use that power to affect the amount of the investor's returns

Measurement. In separate statements: cost, less impairment. On consolidation: eliminated against the subsidiary's equity, with any excess recognised as Goodwill and the minority share as Non-controlling interest.

Effect on ratios. In the standalone accounts, investments in subsidiaries may attract regulatory capital deductions or specific risk weights under the Capital Adequacy Framework [R] — a reason banks watch the size of this line.

Related terms. Investment in associates · Non-controlling interest · Goodwill · Part 8 Basis of Consolidation, NFRS 10, Power over the investee · Part 10

Investment in associates

Simple definition. Shares in companies the bank has significant influence over, but does not control.

Technical definition. Investments in entities over which the bank has significant influence — the power to participate in financial and operating policy decisions without control — accounted for using the equity method under NAS 28 in the consolidated statements, and at cost in the separate statements. Significant influence is presumed at 20%–50% of voting power, rebuttable in either direction.

Equity method in one line.

Carrying amount = Cost
                + Share of associate's post-acquisition profit  (→ P&L)
                + Share of associate's post-acquisition OCI     (→ OCI)
                − Dividends received from the associate
                − Impairment

The source report shows nil on this line for both Group and Bank, but retains it in the format — and correspondingly shows an OCI line "Share of other comprehensive income of associate accounted as per equity method", also nil. NRB's prescribed format keeps every line whether or not it is used, so comparability across banks is preserved.

Related terms. Investment in subsidiaries · Part 3 Share of OCI of associate · Part 8 Basis of Consolidation

Investment property

Simple definition. Land and buildings the bank owns but does not use itself — in a Nepali bank, almost entirely property taken over from defaulting borrowers.

Technical definition. Land, or a building, or both, held to earn rentals or for capital appreciation rather than for use in the supply of services or for administrative purposes. Per the source report's policy: "The Group has recognized as investment property all land or land and building acquired as non-banking assets. Non-banking assets (only land and building) are initially recognized at fair value. Since it is not intended for owner-occupied use, a depreciation charge is not raised."

Nepalese context — Non-Banking Assets (NBA). This is a genuinely Nepal-specific concept and one of the most misread lines in a Nepali bank's accounts.

 Borrower defaults
        ↓
 Bank enforces collateral (land / building)
        ↓
 Title transfers to the bank
        ↓
 ┌──────────────────────────────────────────────┐
 │  NON-BANKING ASSET (NBA)                     │
 │  Recognised as INVESTMENT PROPERTY at fair   │
 │  value. Not depreciated.                     │
 └──────────────────┬───────────────────────────┘
                    │
   ┌────────────────┴─────────────────┐
   ▼                                  ▼
ACCOUNTING (NFRS)              REGULATORY (NRB)
Carried at fair value          Provisioning required on NBA [R]
under NAS 40                   AND a regulatory-reserve
                               appropriation for NBA-related
                               amounts — see Part 7

The distinction matters because a bank could otherwise convert a bad loan into a fair-valued property and make the credit problem disappear from NPL. NRB blocks this by requiring provisioning against NBAs and by forcing an appropriation to regulatory reserve — you can see the line "Short loan loss provision on Non Banking Assets (-)/reversal (+)" in the source report's distributable profit statement, at NPR (88,637) thousand.

Framework. NAS 40 Investment Property; excluded from NAS 16 Property, Plant and Equipment; NFRS 5 applies instead where the asset is classified as held for sale.

Measurement. Initially at fair value on acquisition. Subsequently, under the policy stated, held at fair value with no depreciation — because the asset is not consumed in operations.

Journal entry. Illustrative.

Loan of NPR 80,000,000 fully provided; collateral land taken over,
fair value NPR 65,000,000:

Dr  Investment property (NBA)            65,000,000
Dr  Allowance for impairment             80,000,000
    Cr  Loans and advances to customers               80,000,000
    Cr  Impairment charge/(reversal) — P&L            65,000,000

The credit to impairment reverses part of the earlier provision, because the bank has now recovered value. Analysts should watch for this — a spike in NBA can flatter the impairment line.

Effect on ratios. Removing the loan from the book reduces reported NPL even though the underlying credit loss was real. This is precisely why NRB's regulatory-reserve mechanism exists.

Analyst interpretation. Rising investment property in a Nepali bank is a credit warning, not a real-estate strategy. Read it together with NPL, write-offs and the regulatory reserve movement. A bank whose NPL fell while NBA rose has not necessarily improved.

Related terms. Property and equipment · Part 7 Short loan loss provision on Non Banking Assets · Part 8 Investment property, Non-banking assets, NFRS 5

Property and equipment

Simple definition. The bank's own buildings, branch fit-outs, computers, furniture, vehicles and ATMs.

Technical definition. Tangible items held for use in the supply of services or for administrative purposes, expected to be used for more than one period, measured under the cost model — cost less accumulated depreciation and accumulated impairment — per NAS 16. Also includes right-of-use (ROU) assets arising from operating leases under NFRS 16, as the source report states: "The Operating lease ROU assets and lease liabilities are included in Property, Plant and Equipment and other liabilities respectively."

Depreciation policy from the source report:

Plus three practical policies worth memorising:

• Land is not depreciated (indefinite useful life)
• Leasehold improvements are capitalised and amortised over the lease period
• Assets with unit value below NPR 10,000 are expensed immediately, regardless of useful life — a materiality-driven practical expedient

Method: straight line.

Straight-line depreciation per year  =  (Cost − Residual value) ÷ Useful life

Illustrative example. HCBL buys 200 computers at NPR 85,000 each.

Cost                    = 200 × 85,000        = NPR 17,000,000
Useful life             = 5 years (20% p.a.)
Annual depreciation     = 17,000,000 ÷ 5      = NPR  3,400,000
Quarterly depreciation  = 3,400,000 ÷ 4       = NPR    850,000

Carrying amount after 2 years
  = 17,000,000 − (3,400,000 × 2)              = NPR 10,200,000

Journal entries.

Purchase:
Dr  Property and equipment              17,000,000
    Cr  Cash                                          17,000,000

Quarterly depreciation:
Dr  Depreciation & Amortisation (P&L)      850,000
    Cr  Accumulated depreciation                          850,000

Disposal for NPR 2,000,000 when carrying amount is NPR 1,500,000:
Dr  Cash                                 2,000,000
Dr  Accumulated depreciation            15,500,000
    Cr  Property and equipment                        17,000,000
    Cr  Gain on disposal (Other operating income)        500,000

Note the report's policy: "Depreciation on property, plant and equipment sold or disposed off during the year is charged up to the date of sales and gain or loss on the sales transaction is accounted for." You depreciate up to disposal date — not to the year end, and not stopping at the previous year end.

Presentation. Net carrying amount on the face; note gives cost, additions, disposals, depreciation and closing balances by class.

Effect on P&L. Depreciation & Amortisation — a non-cash operating expense. Effect on cash flow. Purchases and sale proceeds appear in investing activities. Under the direct method used by Nepali banks, depreciation does not appear as an add-back on the face (that is an indirect-method feature) but the report's own basis note explains that operating profit is adjusted for non-cash items such as depreciation and loan losses. Effect on regulatory ratios. Fixed assets carry a risk weight in RWA [R], and NRB may impose limits on a BFI's investment in fixed assets relative to capital [R].

Analyst interpretation. A large jump usually signals branch expansion or a core-banking system upgrade. Rising PPE with flat revenue means cost pressure ahead — depreciation is sticky and will drag operating profit for years.

Related terms. Investment property · Goodwill and Intangible assets · Part 2 Depreciation & Amortisation · Part 4 Purchase of property and equipment · Part 8 NAS 16, Cost Model, Straight Line method, NFRS 16, ROU assets

Goodwill and Intangible assets

Simple definition. Intangibles are things the bank owns that you cannot touch — mainly software licences. Goodwill is the premium paid to acquire another bank over and above the fair value of what that bank actually owned.

Technical definition.

• Intangible assets — identifiable non-monetary assets without physical substance, carried at cost less accumulated amortisation and impairment (NAS 38), amortised over five years per the source report's policy.
• Goodwill — the excess of consideration transferred over the fair value of identifiable net assets acquired in a business combination (NFRS 3). Not amortised; tested for impairment.

Nepalese context — why goodwill exists in Nepali banks at all. NRB drove an aggressive merger and acquisition policy to consolidate an over-banked system. Dozens of Class A, B and C institutions merged. That history is why goodwill sits on Nepali bank balance sheets, and the source report explains the specific accounting path:

Unpack that, because it is important and easy to skim past:

TIMELINE OF NEPAL'S BUSINESS-COMBINATION ACCOUNTING

Before 2077.07.25   Mergers accounted under NRB Merger &
                    Acquisition Bylaws 2073
                           │
2077.07.25          ICAN issues CARVE-OUTS 3 and 4 on NFRS 3
(≈ Nov 2020)        → temporarily modified how NFRS 3 applied
                      in Nepal
                           │
2079.04.15          Explanatory Note on Accounting for Business
(≈ Aug 2022)        Combination issued → carve-outs 3 and 4
                    WITHDRAWN
                           │
FY 2021/22          Goodwill recognised per the new guidance
                           ▼
                    Goodwill now on the balance sheet

This is the practical lesson: Nepal applies NFRS with carve-outs, and the carve-outs change. An IFRS answer is not automatically the Nepali answer. Always check ICAN's position for the reporting period.

The goodwill calculation.

Goodwill = Consideration transferred
         + Amount of any non-controlling interest
         + Fair value of any previously held equity interest
         − Fair value of identifiable net assets acquired

Worked example. Illustrative — HCBL acquires 100% of a development bank.

Consideration transferred (shares issued)          NPR 4,500,000,000
Fair value of identifiable net assets acquired:
    Loans and advances (fair value)                NPR 12,000,000,000
    Investment securities                          NPR  2,000,000,000
    PPE                                            NPR    800,000,000
    Other assets                                   NPR    300,000,000
                                                   ─────────────────
    Total assets at fair value                     NPR 15,100,000,000
    Deposits and other liabilities                (NPR 11,200,000,000)
                                                   ─────────────────
    Identifiable net assets                        NPR  3,900,000,000

Goodwill = 4,500,000,000 − 3,900,000,000        =  NPR   600,000,000

If instead the net assets had been worth NPR 4,800,000,000:

4,500,000,000 − 4,800,000,000 = NPR (300,000,000)
→ BARGAIN PURCHASE GAIN, recognised immediately in profit or loss.

The source report's distributable profit statement carries a line "Bargain purchase gain recognised (-)/reversal (+)" precisely because NRB requires such a gain to be stripped out of distributable profit — it is an accounting gain, not cash, and cannot fund a dividend. See Part 7.

Journal entry on acquisition.

Dr  Loans and advances (fair value)      12,000,000,000
Dr  Investment securities                 2,000,000,000
Dr  Property and equipment                  800,000,000
Dr  Other assets                            300,000,000
Dr  Goodwill                                600,000,000
    Cr  Deposits and other liabilities                  11,200,000,000
    Cr  Share capital / Share premium                    4,500,000,000

Subsequent measurement.

• Goodwill — not amortised; tested for impairment at least annually and whenever there is an indicator. Impairment is irreversible.
• Software — amortised straight-line over 5 years.

Effect on regulatory capital. This is the point analysts most often miss:

The same logic drives the distributable-profit line "Goodwill recognised (-)/impairment of Goodwill (+)" — see Part 7.

Presentation. Combined single line in this format. Notes should split goodwill from other intangibles and disclose the impairment testing approach.

(NMB, Asar 2083: Group NPR 134,051 thousand vs Bank NPR 125,732 thousand — small relative to a NPR 405bn balance sheet, so not a material capital drag here.)

Analyst interpretation. Large goodwill relative to equity is a warning: it is the least tangible asset on the page, it is deducted from regulatory capital, and its impairment is irreversible. In a merger-heavy market like Nepal's, check it whenever a bank has grown by acquisition.

Related terms. Investment in subsidiaries · Part 7 Goodwill recognised / impairment, Bargain purchase gain recognised · Part 8 Business Combination (NFRS 3), Acquisition method, Identifiable net assets acquired · Part 12 CET 1